Ethereum, the second-largest digital currency by market cap fell by 6 percent in value after a report that regulators are contemplating whether it and other virtual currencies should be treated like stocks.
The U.S. Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) are questioning whether the same regulations for stocks should apply to these cryptocurrencies, The Wall Street Journal reported Tuesday
The creation of cryptocurrency itself is being questioned as “probably an illegal securities sale,” as per Wall Street Journal report, which quotes people familiar with the matter. The Ethereum Foundation launched the presale of ether tokens in July 2014 and managed to raise more than 31,000 Bitcoins by selling 60 million ether tokens, then valued at $18.3 million. The presale is being looked up as a speculative launch that could lead to a rise in asset value of Ethereum. It is being considered as a stock offering.
Ether has a market capitalization of roughly $65 billion, dropped more than 6 percent to $652 as of Tuesday evening, according to data from CoinMarketCap.com.
The regulatory analysis is centered on correlating the influence of digital currency founders with that of Managers and promoters of listed stock companies. Similarly, whether the founders of such cryptocurrencies wield any influence on the token valuation is the root of this regulatory analysis.
Both SEC and CFTC differ on how to define cryptocurrency.The CFTC considers them to be commodities, meaning they are exempted from SEC regulation while SEC labels them as securities. In March, SEC regulators stated that they would seek applicable securities laws on all aspects of the cryptocurrency market, including exchanges and digital asset storage facilities such as wallets.
In March, Ether proponents submitted a proposal to SEC requesting “a broad regulatory exemption” since ether is mined by a diversified network of participants and has become so decentralized that it should not be deemed as a security.